A recent Firmex-Divestopedia survey assessed M&A fee structure. With very little publicly available data on this topic, the results provided significant actionable data for would-be sellers. Drawing upon that data, here are some factors to consider as you interview M&A advisors.
Considerations for small-to-medium owners
The smaller your company is, the larger your proportional fees will be. That’s because M&A advisors must receive fair compensation, so may charge a higher proportion of the deal. Shopping around to see which firm offers the lowest rate can be helpful. However, it’s important also to keep in mind that a low rate means very little if the deal fails. In the advisory market, you often get what you pay for, and you must consider why an advisory firm might charge a lower rate than other firms. So interview each advisory firm you consider to gain a clear understanding of how they intend to market your business.
Understand the value of flexible fees
The report highlights the frequency with which firms use time-sensitive retainer fees, with payments made monthly instead of upfront as part of a fixed fee. These fees cost less upfront, and may lower your overall fee budget if you’re well prepared. So they can also incentivize you to get your books in order before hiring an advisor. This, in turn, can increase the overall odds that the sale will proceed smoothly and quickly.
Know when to choose a flat fee
Although they can trigger sticker shock, flat fees are still best for some types of sellers. If you’re inexperienced, a flat fee provides greater falue3, particularly if you anticipate a long sales process or are unprepared to navigate the challenges of a sale. The key here is to look honestly at your business and assess how much preparation you’ll need to do to get ready.
Understand there’s more than one type of firm
It’s important to understand that the size of the advisory firm can affect both fee structure and outcome. The prestige of working with a large, big-name firm lends significant credibility to the deal. However, these firms do not always confer the best value on the deal, and they may not give you the personalized attention you need. Because you’ll form a smaller piece of their total client base, you’ll be less important than you would be if you worked with a smaller boutique firm.
So how do you choose? The benefits of a large firm include:
The benefits of a boutique firm include:
Moreover, as boutique firms increase in popularity, you may find that some of the best players in the industry work for these firms.
Fees inevitably figure prominently in the deal-making process, particularly as you evaluate and interview advisors. But they should never be the only, or even most important, consideration. Value matters, too, and at every stage of the interview process, you must ask yourself what specific value this firm can bring to the transaction.